>> welcome to bloomberg daybreak. i am alix steel. jonathan ferro is off today. here is a very calm and flat market today. session highs go nowhere. but we are positive for the year. the fx market is all clear. we do have a stronger dollar against the yen. up by 2/10 of 1%. the 10 year yield goes nowhere. the boj stops buying as much long-term securities. crude is up again. david: here's what you need to know. with brexit just around the corner, the british are hoarding their cash. companies say they are exploring their options across the channel. americans see the bright side. soaring beyond estimates. is this because of donald trump

he tweets that it is. that -- will take a write-down for the nuclear power project in the united states. how bad will it get? might a trump administration help? alix: 10 year yield going nowhere. take a look at the bloomberg. the ratio is the white line. it was the weakest since 2000 eight. indirect bidders. foreign bidders with the weakest of the bunch at 32%. is this what we are going to see in 2017? continued weak demand? tonyng us now is crescenzi. the move that we have seen

in the last week or so since the election of donald trump, yields have been rising. u.s. 10 years have gone from the feeling is that perhaps yields will keep rising. we are lookingt at is that markets have build a bridge to somewhere. markets have been hoping that the central banks will boost the economy. wouldrticular authorities take over. that is the feeling that is being generated by donald trump's election. that fiscal authorities are taking over. mode of economic growth. rather than central banks. and this worries the bond market. because if they are pulling back to let the fiscal authorities do their thing, interest rates could rise. and what matters most in the end is a permanent

basis. measure a cyclical taken next year. so we will have to see. there is a long story about that to jock about productivity. alix: we will get to productivity, for sure. david: take me through the yield curve. the shorthand and the long end. of much of this is because rising rates and how much of this is because of inflation? combination. the new neutral. the idea that policy rates globally have fallen. they're neither pushing on the gas or the brakes. the rate has probably gone up a little bit because the gross trajectory has improved. so there is a pickup in the neutral rate. increase inre is an inflation expectations of about a quarter point. the shorthand story relates to the fed and the neutral rate.

but we wouldn't expect there to be a big change. the fund market has moved a good deal and the last six weeks but it hasn't really changed its view on the fed. arek about where markets priced. look at the federal funds rate, the rate that controlled us in 2020, it is still only around 2%. said policy was 4.25. so markets are still believing this will stay low and this is a message who look at doubt 20000 when you look at the trajectory rate, going forward, look through the rest of the decade. a more benign, subdued picture on the growth story in the u.s. and globally. outlooks coincide like you have a conviction in that short-term rates could keep rising as we get the cyclical boost from donald trump.

but long-term you are still a believer in lower for longer. it is difficult to see yields rising, typically. there are two things. a lack of a permanent change in growth to check to refer the united states. meaning a shift from the new normal, a growth rate of 2% to the old normal. closer to 3%. we cannot yet propose that growth has picked up because we know that productivity hasn't picked up. my second thing is that the global rate picture is subdued. he market price for the bank of japan to keep its policy rate negative through 2020, and the same for the european central bank. also near zero in 2020. so with rates low there and capital being invested globally, that flows into the united states and contains the rise in interest rates reiterated -- rates.

those are the two forces that will keep interest rates subdued and low for the rest of the decade. david: could the fed do the bond market a favor by raising interest rates? sending a message that we will let it get out of control? tony: yes. and i say that janet yellen in her oppressors, the press she had after the meeting last week, she had a could stands a, a georgia stanza moment. where he tried to do everything the opposite because he wants things to go his way. so janet yellen can do the opposite. by acting tough she could bring rates down. because it will protect the pass on rates. the passt views that is towards 2% as a destination point for the federal funds rate. if the fed is tough on inflation, it will limit the amount to which inflation can rise and contain the market

terminal on the viewpoint. the bond market needs a cop on the beat. fed.hat is the and otherwise the vigilantes takeover. so this could be a good thing for the interest rate market. alix: you are staying with us, tony crescenzi. betteryou can do any than turning to donald trump himself to ask about what he thinks is going on in the economy and this comes in the form of his tweet. he said last night, "does the surged tomer index the highest level of more than 15 years. thanks donald." joining us now is kevin cirilli. this comes on the heels of him saying that he gets a 10% of the

equity markets. donald trump is bullish going into 2017. kevin: i think he is pretty bullish on himself. the bottom line is that when you look at the market reactions beenlection, it has positive. and there is no tonight that. and if you remember back before the election when a lot of economists and legal pundits were saying that, should donald trump become president, there would be a negative market reaction similar to what we saw brexit, thatfter proved not to be true. so clearly the president-elect is having fun with this and exaggerating. we have seen that before. but clearly, he is noting that there has been a positive market reaction. and with this, you can go to the bloomberg and set up a look -- and set up an alert so that you don't miss a tweet. david: let's take a look at the

consumer confidence. this is really shot up since the election, in fairness. and i can get is fair to attribute this to donald trump. at the same time, this is what has been talked about but it isn't based on actual action. and there is some reporting now that he is putting together a team of rivals that is somewhat fractious endpoints in different directions when it is unclear as to what points will come down. infrastructure or trade? kevin: i would note that you have an interesting triangle that is beginning to take shape. you have people like steven mnuchin who are much more aligned in the goldman sachs world and the deregulatory policies in the shaping of dodd-frank. but you also have folks like steve bannon, who are going to be much more aggressive on infrastructure spending and taking a much more naturalistic

approach to infrastructure spending. and then you have folks like nick mullaney who will be the budget head. and he is a tea party guy. and we all know that the tea party and the more ultraconservative wing of the republican party, they are quite aggressive against the reince priebus chairman paul ryan crowd. so i think it will be interesting to watch how all of these different people within the republican movement, and the trunk movement begin to craft policy when he takes office. david: the one thing we could be news outs go long on of washington. thank you to kevin's a really. let's get an update on what is making headlines. taylor riggs joins us with the first word news. taylor: turkey and russia have agreed on a cease-fire plan for syria according to the turkish news agency. it will begin tomorrow between

rebels and the syrian government troops. it won't consider those considered to be terrorists and kurdish back forces. john kerry will lay out his vision for middle east peace today. he is outlining his plan with only three weeks left in the he willministration and speak on the west bank settlements. and the obama administration is on the verge of punishing russia for interfering in the presidential election. according to the washington post, measures could include economic sanctions and another possible route is for the u.s. to launch its own cyber attack. some of these steps could be announced this week. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. i am taylor riggs. this is bloomberg. alix: thank you. we have smb futures relatively flat although around the high of

the session. the big mover today was the ftse 100 after passing a record closing level. i should point out that volume is a bit light, down 37% versus the 10 day average. miners -- partld of that is a little bit of catch-up. we saw gold taking a three-day rally and we haven't seen that since the election and we saw u.s. miners here start to move higher. and now we see u.k. myers move higher as well. headwind is the stronger dollar, the bloomberg dollar index sitting at a record high. gold is still headed for the best year since 2011. the company story of the day has to be toshiba. take a look at the today chart. -- the two day chart. cap is off by $5

billion in the last two days. it has to do with the breakdown of the u.s. nuclear assets and they may be forced to sell assets to make up that kind of cost. we will delve into that story later in the hour. and wrapping appear, qualcomm find light antitrust regulator. .4 percent.s off this involved a patent licensing mobile phone makers. samsung and lg may be able to lower their payments to qualcomm . so that is weighing on the stock today. david: coming up, the election of donald trump gave consumers new confidence. the underlying structural factors support that rally? and how do they get productivity rising again? this is bloomberg. ♪

alix: the ftse surpassing its record closing high on extraordinary light volume. up by .5%. volume is 37% lower than the 10 day average. quiet across the board. david: it is still on holiday. good for them. donald trump expectations for growth is what we have been talking about. but economist say we need productivity to resume its rise and that underlying structural factor may make that difficult to achieve. totalked earlier this month alan greenspan and he gave us his take on the challenges we face. >> and necessary condition for economic growth is the output per hour grows at a rate

probably close to 2%. we are now under and 5%. we are essentially, for the last five years, have been growing scarcely at all. per hour.ct to output but once you have an output per hour forecast, and you know the total level of the population of the working force, you just multiply one times the other, the hours on the productivity, and you get what the gdp is going to look like. is tonytill with us crescenzi. he is making a point that they are interchangeable but they are not necessarily interchangeable. what do we need for growth? as he said, and it is impressive because he is 91 and he is still talking about this in such great detail, talking

about the productivity story. it is the numbers of people that entered the labor force. --s is contingent on been a 1%there has increase in the amount of people. a 2% increase in the amount of things that people produce. the productivity numbers that dr. greenspan said has been growing at .5% over the last five years. why? looking at the data from the bureau of labor's, i chose that people, skills, stuff, and howucture, oil rigs this all gets used. people, stuff and how it gets used.

this is been the part that gets week. we haven't been investing. it is actually declined in last year for the first time an old over 50 years. and that means for a company , 50 computers with 100 people and 48 computers. fewer things in place for a unit of labor. ofthe key for the future growth in the united states is to see investments rise in stuff and for those to be productive assets. and for the people to use their skills to make those things produce things. capitalism is critical. where does that money come from? we have been leveraging up. where do you get the money to invest in capital? tony: this is where the optimism is in the stock market. that the u.s. government will spend money directly on them for

structure but hopefully good spending. act, 48 billion dollars of spending went towards the structures and him for structure that states would otherwise have spent and low value added products. so it is very important. markets are optimistic. give companies incentives for the more output per hour. alix: how do you factor in technology. oil rigs are doing so much more with less. tony: in the end, that is a good thing. it will mean more income for people. janet yellen at jackson hole in before thesaid that conclusion, she said productivity would have to rise past it and it would raise the

interest level. she knows that a rise in productivity will raise incomes for people. that will mean higher inflation rates. alix: tony, great to see you. dallas tony crescenzi. coming up, the british are holding onto their cash with brexit around the corner. we discussed economic uncertainties in the u.k. up next. this is bloomberg. ♪

alix: the u.k. is hunkering down . holy unto their cash signaling the is an up to brexit.

can you help us quantify the wording that we are seeing? about a third more than what we saw this time last year. this keyword uncertainty is affecting everybody in the u.k.. will we see that trickle through to economic data? because of as of now, it has held up relatively way. it has held up remarkably well in you think of the seismic moves we have had this year. people don't know what our relationship with the eu will be when it comes to next year and the year after. we haven't even started the formal negotiations yet. so it will be interesting to see when it does trickle through. see isng we are going to the u.k. housing. people are seeing a slowdown in also has inflation data because the pound has dropped a lot in weight. and that affects prices.

that is part of the reason why people are trying to court cash because they don't know what the situation will be. david: and their companies over there who are trying to figure out what they need to do. degree ofe uncertainty about companies and whether they will relocate? is one of those things that the government is in giving too much away. we don't know what they are saying to them. about thetalked a lot contingency plans. they are in charge of financial stability. equally, people are not sure where they stand at this moment. alix: the u.k. house prices may only eat out a modest gain next year. talk to us about that? it is interesting.

because the halifax said that house prices in the u.k. have risen massively. and it is a big driver of consumer confidence. but they have given a wide range of forecast. they don't know what the situation is. it is a very wide range. so uncertainty, that is what we are getting. david: coming up, we hear from brian moynihan and his forecast on where this is heading over the next few years. this is bloomberg. ♪

david: this is bloomberg. it is 7:30 in the morning on wall street. here is what you need to know at this hour. britain's hunger down with

brexit around the corner. british are hoarding their cash. companies say they are exploring their options across the channel. americans see the bright side. the u.s. consumer confidence soars. is it because of donald trump? he tweets that it is. nuclear hit on toshiba. its stock falls over two days. this after it will lose billions of dollars from its nuclear power plant. mighty trump administration help? before the open, light volume. flat movement. the s&p futures around the highs of the session. the ftse 100 is over a record closing level but the volume is unbelievably light. the dollar is really pushing higher here. 103 on thellar at exchange right now.

the japanese 30 year yield .acking up by four points the boj stopped buying as much longer-term debt. and nymex crude at a 17 year high. david: opec better deliver. let's go to the morning must watch. i spoke exclusively with brian moynihan about how his bank will change over the coming year. and in particular, whether they will be adding to the workforce and whether they will be cutting back in the workforce. brian: there is a basic, fundamental shift now. if you go back a few years ago when we had 60,000 people working on the mortgage stuff, that has come down. and it is a shaping down of the collections effort. and this drifts down now because

the process is being digitized. when a customer takes a picture of a check and send it in, that saves us from taking paper out of the system. we have a series of projects. they are not billion-dollar investments. $10 million or $12 million investments. that is just by applying technology in many more places. we hire a lot of salespeople. the salesiew components and we went through the retail environment. that would after 25,000. under the 208 thousand, let's assume that is a constant. what proportionally will there

be more of or less of? the economy continues to grow and we will have more sales-relationship management people, more people in the commercial banking index and more in the cash management business worldwide. andrew will have u.s. to mastic hiring. we will keep hiring people. it isn't electronics, it is person to person. overallf you keep the level the same, where does it come out of? brian: back and middle office. we are working on our loan underwriting and creating techniques to simplify and digitize the process that is pretty manual. it sounds hard to believe but you have double entry of things manually because there is a lot of work going on. and to get it right, we have somebody enter it and we have somebody check it. there are always parts you can

work on. david: if you take your four ,ain lines of business today global banking, global market, private wealth management, consumer -- will those portions save your revenue be roughly the same? brian: if you look at the first nine months, it is fairly similar. as you look at businesses, the consumer banking business is the biggest economy in the world. so that will help it most. we give constraints, how much of the balance sheet can be given -- it could have so much risk

and so much equity but they do a great job. this won't change dramatically. because in wealth management, the way the rate structures go down to earth -- all of them earn capital. all of the management expenses as well. we have suffered was discontinued way down there. david: i was particularly interested in this discussion. when you talk to him, he is very enthusiastic because they have invested a lot of money in syntax. but they don't they get all overall/the workforce. they say they will have more relationship management people. they're replacing the back office with machines. alix: at what point do a bank start thinking about themselves as a technology? it seems like the shift is in process. the chiefhad

technology officer bank of america on earlier and she is responsible for almost half of the georgia 9000 people working there. and you wouldn't have thought that. it is interesting to see where the banks are going. now, we turn to auto. audio a record year for sales and 2016 could eke out another record. from this chart, you can see how strong sales have been. it tipped down through november, that doesn't include through december. the question is, what lies in store for 2017? what could the trump administration mean for car sales? and profitability? joining us now is jamie butters. welcome to the program and happy holidays. let's go to the question -- 2017 north american auto sales. it has to come down at some

point, right? surveyed all the analysts and the expectation is that sales will drop by 200,000 -- the equivalent of one factory output. like see specific things chrysler and in the car production to retool factories and to hold more pickups and suvs. of people whot wanted the new car or a truck or suv since the recession, they have bought them. so we have hit the top and we're probably looking at a steady patch oh and a doubt back from last years record which may or may not be met this year. it will be close. david: so what about the trump trade. there is a lot of euphoria. have an effect on this? could people have more money in their pocket? jamie: there is growing

anticipation that there will be more purchases because of significant tax cuts. will be a republican congress and they are very eager to cut taxes. more moneyuld put back into pockets of higher earners. and there would be more cars and trucks and luxury cars. assumptionlus is the that the regulatory environment will be lessened. had installed a fuel economy regime. average fuel efficiency 254.5 miles per gallon. that is coming down a little bit but let's assume that president trump is not a big fan of global warming as a major issue. so they will bring that down. huge lift fora

auto stocks, including chrysler. which is the most dependent on pickups and suvs because of the jeep brand. david: those fuel economy standards are up for review. you mentioned fiat chrysler. we have a level here of the fiat stock price. this presumably helps trucks. jamie: fiat chrysler has been very truck heavy. this makes them a boom and bust kind of stock. but gm and ford have also benefited. for did the f-150 and f 250. was the there opportunity to benefit from less environmental rules. and we expect that to get tough from 2021-2025. toyota, honda, nissan --

they have trucks and suvs -- that for two yoder, see camry -- these are hugely important for them. and they don't benefit as much from cheap gas. david: what about trade? , how could that affect the gm of the world and the forward of the world? jamie: we have a trump bump on the demand side but we could have a trump's slump on the other side. he has talked about a 35% tariff on parts and vehicles coming in from mexico. that affects everyone in the industry. they all make small cars there. especially ford. they are planning to build a plant in michigan. but this is really on the cross hairs of this issue with china.

elected,since he was he took the call from taiwan and saying that the one china policy is up for negotiation, brian johnson from barclays said that they are most easy to hold hostage. throughl more vehicles their venture with china than they do and all of north america. so gm could be looking at an antitrust probe and possibly finds. david: thank you so much for being with us. that was jamie butters. alix: coming up, toshiba plunging the most as the renaissance turned into a potential crisis for the company. this is bloomberg. ♪

taylor: i'm near the hewlett-packard enterprise greenroom. coming up in the next hour, chen .hao head of brandywine global. the big story over the last 48 hours is toshiba. shares down the most on record after it may have to write down billions of dollars worth due to an acquisition. isning us now on the details stephen stapczynski. what led to this write-down of nuclear assets in the u.s.? : in 2000 six, toshiba bet that nuclear would be big over the next few decades. aph that, they bought the 1000 reactor technology. fast forward 10 years later. andral gas is really cheap that is causing a lot of

problems for nuclear around the world. there are projects in the u.s. right now, reactors being built, that have ultimately cost them a lot of money and that is what the bright down has to do. alix: was there a trigger for this? because we have known that the nuclear plants here in the years -- here in the u.s. have been struggling. year, to get these plants be not delayed anymore, toshiba actually purchased the construction unit that was building the facilities. now it is a bit comic aided by during the negotiations, toshiba thought they would foot the bill for expenses related to cost overruns and they thought it would be toshiba. so a private auditor is looking at it and it is looking like toshiba might be footing most of the bill. so a lot of it is an accounting

problem. a pretty bigs miss. when they bought it, they knew they were cost overrun. you would have thought that was the first thing the lawyers figured out, who would take the risk on that. that is what ak lot of the investors were asking yesterday. the president in tokyo had a press conference and a lot of people are scratching their heads, thinking how a major anglomerate like toshiba make mistake like this? and unfortunately, it seems like it was miscommunication and also, i think folks didn't realize how much the cost overrun really was at these facilities. causing problems for both of the companies in the u.s. and japan. now, this is not new to toshiba. toshiba had a massive write-down last year because of it and .ccounting scandal so it continues with them to this year.

david: so they don't just sell these units in the united states. they have a substantial international business. can they make this updavid: in e long run, internationally? stephen: internationally, it might be difficult. according to the academics i've spoken with, what this does is an attack on their business. one, if you look at the headline, it is a multibillion-dollar write-down. that is a lot of money. so if you are china or india or any other country building nuclear reactors, who would you buy from? the company that has massive right lines and has made headlines on bloomberg two days in a row? builtgo to the folks who the reactors on budget? at the same time, to sheila has to bear the write-down which will make the financing more difficult. this takes a lot of capital and they might not be able to get the folks behind them to give the final investment.

alix: where will they get the capital? we have no idea how much the breakdown will be. $4.3 billion? or do they get that? stephen: that's the thing. we don't know how much it will be. if it is like $5 billion? they will have stock shares to the banks and they will have to get money from the banks. , specificallys the main bank backing toshiba in japan, they could get money from them. sharest will dilute the when they are converted to normal shares. which is bad for all of the investors, in general. that is why you are seeing a massive selloff today and most likely tomorrow and most likely the day after that. so toshiba won't know the final amount of the write-down until february so there will be a lot of speculation. alix: thank you. .hat was stephen stapczynski

time now for other headlines. here is taylor riggs would be bloomberg business flash. taylor: south korea has find bull come for antitrust violations. authorities say the american chipmaker coerced customers when selling chips used in mobile phones in south korea. qualcomm says they will appeal. the right to use technology central to mobile phone systems. volkswagen is making another move to move to mobility services. canadianired the payment operator, pay by phone. and the rich got richer in 2016, according to the bloomberg billionaires index. the wealthiest people saw their fortunes raised by 5.7%. warren buffett added almost $12

billion to his fortune. $74 billion. bill gates is number one. he is now worth almost $92 billion. that is your bloomberg business flash. for theime now bloomberg trends. taylor just gave us our trend. this is will be looked at. gun, there is a total that7 billion dollars billionaires added last year. and the headline in the bloomberg point out the irony. the world's richest. as she said already. warren buffett made a lot of money and so did harold hamm. oh, yes. but that was more opec than populism at the end of the day. david: the people who made the most money tend to be against donald trump. warren buffett and bill gates.

warren buffett made that because of airline stocks and banking stocks. because in response to trump, the market made up. 19% in profit. alix: so the top 1% made bank when it comes to that but we saw in a survey yesterday, expectations that stocks will go higher jumped the most since 1998. so the ordinary guy is also seeing the potential. david: and other things like interrogation. alix: yes, it was about security and the border. an interesting story and we will revisit that in the next few hours. stress is where the in italian banks. a huge story in 2016. i will break it down. this is bloomberg. ♪

alix: this week in off the charts, you look at the major themes of 2016. today, we delve deep into italian banks. front and center -- this is the subordinated credit default swap of monte dei paschi. look at what has happened in the last few months. the funding limit and liquidity issues have got a. the subordinated debt has spiked. and now, around the levels that we saw earlier in the year in september and the levels we saw in july, and actually, the levels we saw in february. the senior credit default swaps are different story.

we are nowhere near the funding level stretch that we saw in february of this year. the question is, does that mean there is confidence in the market? longer-term and the bondholders that are protected would be ok? will this come through and be it? to support at the heart of the issue is the nonperforming lows. we have talked about this all of last week. these are nonperforming loans. italy has it at 18% and the u.s. has 1.5%. they are trying to offload her he billion dollars of those loans. and overall, the outstanding bad billion dollars. these are enormous numbers. and it raises the question, is a bailout fund even enough to cut it when it comes to european banks -- italian banks? at the heart of this is weak growth. this is a normalized part.

italy is the white line. the euro is the purple line. germany is the green line. crisis, younancial can see the drastic underperformance in italy down by 8% versus before, when we had italy stronger than other nations. and at the heart, that is the real issue. david: coming up, talking about whether there is confidence in the new year with jacob kirkegaard. he will talk about the election and brexit coming up. this is bloomberg. ♪

alix: welcome to bloomberg daybreak.

i am alix steel along with david westin. stand, an houre and a half before the opened in the u.s. futures relatively flat. a positive on the year, and the ftse surpassing its record close on painfully thin volume, down 37% versus the 10 day average. the team market, continues, a stronger dollar. continues, a stronger dollar. 10 year yield goes nowhere. nymex crude around a 17 month high. britain hunkers down with brexit around the corner. the british are anticipating lower growth in 2017, while companies explore options across the channel. americans see the bright side.

consumer confidence soars beyond all estimates. is it because of donald trump? he tweets that it is. fornew year may look bright the u.s., but china faces higher borrowing costs, a weaker yuan and concerns about how fast it can grow its economy. those concerns that really reverberating in asian markets. the asia-pacific market -- index closed up by 2/10 of 1%. it is the first update we have had since mid-december. the longest since september. i mentioned earlier, the ftse. the ftse 100 surpassing its record closing level. we are only up 5/10 of 1% and you do have volume

extraordinarily light. this index has risen every year after the holidays since 2012. can you trust this kind of record-setting at this time? part of the reason is due to some of the gold-mining stocks. glencore, anglo american in particular, a three-day gold rally. these minors playing a bit of ketchup. -- playing a bit of cash up -- catch up. the question is, we look at the 2017, what can we expect done next and joining us is our bloomberg stocks reporter. what is the conviction trade? let's ask you. the conviction trade is there is a lot of bullishness.

what is interesting, and i think some of the strategists said it is sort of contingent. they say there is a distinct chance at some point next year, -- listen, here is the bullish call contingent on a corporate tax break. quite aslly don't see much, but they are popping up a bit, this year. david: he also went overseas for it. take a look at this. >> i think the yuan is continuing to weaken, and that will bring the u.k. up. equities,sh on u.s. but i think the sharper issue is going to come down. upatility is going to go with a much more robust environment. david: really -- it really isn't

fx trade -- it really is an fx trade. >> if you look at what people have been investing in, they have been going towards -- not just stocks like the russell 2000, but also taking in value and come -- value companies. there is a lot more value to be found, but there has not been flows to back that up. the thing michael brought up is that he referred to the sharpe ratio, basically sort of a risk-adjusted return, and that is an interesting point that he has actually been sort of individual because he has been very bullish on the s&p, but he doesn't against the backdrop of lower earnings. right now, a lot of people are concerned about valuations. day, we couldthe

have an s&p that moves up against the backdrop of rising earnings, which things -- which then keeps things flat. if you do have the earnings growth, a lot of the sectors are baking it in for next year, it could create a situation where the market goes up, what it does not become loftier or get to this market where we are trading at 25 times earnings. alix: the question is what does that do to volatility? the s&p seeing its largest fluctuation since 2008. 467 points, the highest in eight years. are we going to see that kind of move again, even though volatility is going nowhere? >> i was running these numbers yesterday. when you look at that range, it is small, but still a pretty big move. there is this technical analysis that people look at which is

when you are -- when you're high is higher than last year's high and your low is lower than last year's low. the volatility is definitely going to be different, because the volatility has been related to the politics and geopolitics, whether it is brexit or trump. people are hanging on to his every tweet. alix: it will be sleepy, that's for sure. oliver renick, thank you so much. david: you talk about volatility, you really find it in europe and politics. the new year will dawn with a fair amount of uncertainty on the other side of the atlantic with major elections in france, germany and a netherlands. -- and the netherlands. what are the political forces at play? with us from denmark is jacob kirkegaard. thank you very much for taking time to join us.

let's start with brexit because it does overhang so much of what is going on in europe. what are you anticipating? the first thing i expect is the british government to lose at the supreme court, probably a unanimous vote against it by the 11 judges. i would expect theresa may to push a short bill through the parliament that enables her to begin the negotiations at the end of march. in that sense, it is fairly smooth sailing for theresa may. from then onwards, i expect things to be difficult for her. it is clear that the european union negotiation tactic is to play hardball, basically saying we will not negotiate anything other than the exit, and then

after that we can negotiate what the future relationship will be. week from thelast european court of justice that said any future agreement between the eu and the u.k. will have to be approved by each national parliament in the european union. that gives every member of the eu a potential veto. , much less an exit future relationship will be very acrimonious. -- somed not expect it people have suggested a decade. i think under this scenario, it is possible. the problem for theresa may will be that businesses will be responding much sooner. i would be expecting the first

announcements by major financial institutions and others to basically begin relocating part of their operations out of london biddy -- pretty soon into 2017. david: at some point, she will have to indicate what her negotiating posture is, what she is looking for, and what sort of political difficulties might that raise because everyone is expecting the best from their perspective -- respective position. it will come down to what does theresa may think can hold the conservative party together. far, it seems that what she is betting on is that a hard brexit is what will keep her party united behind her, meaning leaving the european internal market, leaving the customs union and going for a clean break. i think that scenario is going to be difficult for her to

sustain, once we get the scenario where businesses begin to announce that if the u.k. , they the internal market will shift part of their operations out of the country. for her, it is all about keeping her party united. so far, she has been -- it has been easy for her. going forward, it will be much harder. alix: if she can't keep that unified front, do we see the possibility of a snap election? jacob: absolutely. -- that keeps the u.k. in the internal market, then i don't think she has any other choice but to go for a snap election. that will be the mother of all uncertainty, politically in the u.k., because we have seen some of the elections where the liberal democrats who have said

they would like to undo brexit, they have done very well in some of these bi-elections. we could see a massive reshuffle and throw. parliament into the -- throw up in the air, the entire negotiating process. alix: big predictions, thank you very much, jacob kirkegaard. david: let's get an update on what is making headlines outside the business world. 2 -- turkey and russia have agreed on a cease-fire plan for syria according to the turkish new he -- news agency. it calls for a truce to begin tomorrow between rebels and the syrian government. it will not cover those considered to be terrorists. china has made a move seen as a challenge to president-elect donald trump. they have the pleasure only aircraft carrier to troll the

disputed south china sea. it is accompanied by five other warships. donald trump has antagonized the chinese government. york, chinese hackers have been accused of making more than $4 million in illegal profit by breaking into the servers at large law firms. according to an indictment, they targeted seven law firms and had -- that had been hired to advise on deals. one of the suspects has been arrested. day,l news 24 hours a powered by more than 2600 journalists and analysts. this is bloomberg. david: coming up, 2016 was a good year for populism. it was also a good year for billionaires. jacob kirkegaard is still with us to sort through that irony and what it may mean in 2017 in europe.

this is bloomberg. ♪

alix: this is bloomberg daybreak. let's get a check of the markets about an hour away from the open in the u.s. s&p futures around their highest of the session. the ftse holding on to some record gains as miners soar. the dollar continues to grind higher. the euro-dollar reaching 1.04 off the lows of the session. the dollar-yen up, in addition. dollar strength reigns true.

can equities hold on to their gains? david: we turn back to europe any year with pop -- when populist voters changed policy across europe and the united states, the world ticky wealthiest people got richer. for more on this story is jacob kirkegaard. you are an expert on europe. here is more because of security ending -- immigration concerns than economic issues. how is it motivated in europe? -- theit is a mixture of general type of alienation from economic insecurity, the sort of fear of the loss of middle -- of the middle class and unemployment. the big driver in europe of

populism is immigration. there is no doubt that this was probably the defining issue for the brexit referendum. it is also what is putting america under pressure in germany. rise to theg the national front in france and other populist parties. immigration is the big one. ,avid: if you are angela merkel running for france or theresa may, how do you position yourself with your constituents to give them what you need so you don't have a populist uprising against you -- what they need so you don't have a populist uprising against you? jacob: you secure the border. that is what the european union has been doing. they have negotiated a deal with turkey that is sort of a faustian bargain in the eyes of many, but one that has stopped

the inflow of refugees from turkey through greece. the european union is also beefing up naval patrolling in the mediterranean. contemplating that last year, according to the u.n. , you saw the highest number of people die trying to cross the mediterranean to reach europe. we are into the several thousands of people that drowned, officially. yet, this does not have any material impact on public opinion in europe, which in my opinion is very striking. keenly testament to how europeans want their external borders safe. they want to be back in control and that is what angela merkel has to deliver, and then also try to improve the economy, etc. david: going back to brexit, is

it possible to secure those borders and not interfere with commerce and trade? will bet is -- it difficult, but it will be possible. you likely have some transition difficulties as you put in place more controls, physical borders outside of europe. for trade, i think it will be possible, unless you are talking about the kind of trade that involves the flow of migrant workers. that is clearly going to be disrupted, for lower skilled workers, which is bad news for agriculture and others. i don't view that as the main economic threat to europe. , thankjacob kirkegaard you so much. alix: coming up, the upside for u.s. steel. bank ofhear from

america, next. ♪

alix: this is bloomberg daybreak. will we see big import tariffs in a trump residency? i recently sat down with merrill lynch metals analyst timna tanners to talk about the the u.s.ty of the steel industry, stocks she likes -- countryave basically a that is going to need to be self-sufficient. on many ofiffs put the countries that export to us, it will limit options for consumers of steel to the domestic industry. since there has been consolidation over the past decade, that's one of the things we said is that the steel will

be able to name their price. this has huge implications for consumers of steel. it has implications if the tariffs extend to products made out of steel. this would include things like appliances, cars and whatnot, imported into this country. it depends on the range of products made by steel that could receive tariffs on top of what we know. alix: i have a great chart that takes a look at the steel products index. it has been rising significantly. what companies are going to benefit the most? timna: a number of things in play, currently. we called it a perfect storm driving steel prices higher that is not necessarily drive u.s. cost higher. if you look at the factors, it is protectionism which was in place before trump and can be enhanced under his presidency.

the other is the medical cost cost-- the met coal push. it is already receded a bit. costoal is an important and as a gets pushed with steel manufacturers, it is driving the steel price globally higher. the u.s. tends to demand a premium on that price. alix: so a perfect storm, like you said. what names are best poised to profit? timna: we have highlighted ak steel, u.s. steel. we also like nucor and steel dynamics. we think the u.s. names don't have the same cost structures to gain a premium over the rest of the world and are poised to benefit from incremental tariffs. alix: how much of the trump

infrastructure plan is currently priced in? timna: i think it is hard to check the late how much is priced into the stocks. a current level of hrc is priced in and some increases are priced in. as far as infrastructure, we are more skeptical. we know how to process infrastructure and it tends not to be a question of political will, but where the dollars come from. do we want to increase taxes on gasoline, have more tolls or deficit spend and that of those three are particularly palatable to lawmakers. we are more skeptical about the likelihood of imminent spending on if a structure. sentiment around demand has been improving to the extent we will see fewer regulations under a trump presidency. alix: like i mentioned yesterday, the s&p steel index

up 20% since the election. david: one of the things we forget about is steel disputes with china, both with the u.s. and europe. the trip administration comes in and says they will be tougher. alix: willie actually end up cutting it back? interesting to look at different sectors under trump. up next, a power player, the sea io -- the ceo of dynegy. this is bloomberg. ♪ wow, x1 has netflix?

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♪ grace and frankie, hemlock grove, season one of...! ♪ show me house of cards. finally, you can now find all of netflix in the same place as all your other entertainment. on xfinity x1. alix: this is bloomberg daybreak. we are an hour away from the open in the u.s. the ftse surpassing a record closing high, up 5/10 of 1%.

volume is incredibly light in europe. the stronger dollar continues to trump. 1.03 around the lows of the session and you see the dollar backing up against the yen. david: here is what you need to know at this hour. britain hunkers down with brexit around the corner, the british are hoarding cash and anticipating lower growth while companies say they are exploring across the channel. america's see the bright side. consumer confidence in the u.s. soars beyond all estimates. is it because of donald trump? he tweets it is. the new year may look bright for the u.s., but china faces a weaker yuan and concerns about keeping its growth up. how worried should the markets be? this whole week, we are examining the impact of a trump presidency on various

industries. we now turn our focus to the power industry. will trump keep his promise to call miners? >> we will start winning, winning winning and you will be very proud. for those minors, get ready because you will be working your asses off. alix: if we see a coal renaissance, what does that mean for independent power producers? robert flex in, president and ceo of dynegy is with me. is more coal good for you? robert: certainly good for us. as our prices rise and natural gas prices tend to go up, plants become more profitable. you would think more supply and the market means lower power prices. my terminal shows pgm prices and

they just declined since -- in a trump presidency. largest related power grid in the unit -- in the country. how is that good for you? newrt: you will not see plants being built, this is utilizing the capacity that is already there. it is displacing other less economic forms of energy and if his message has been about having fair competition, and in doing so, if we eliminate subsidies for different types of generation and become more generation in terms of technology neutral, i think that will be good for coal and increase the capacity for it, and those coal miners will have to go back to work. alix: you don't see more power coming on net, you see more coal

and less of something else. if you have more generation from coal, you have less from natural gas. you would see other types of plants shutting down. the mosts possibly uneconomic generation out there and it is not subsidized, that generation will tend to go away, and the coal will generate at a higher capacity. alix: we have seen a lot of states start to subsidize nuclear power plants and keep them in business. it does not make me think they will come off line. robert: that is a good point. there has been a lot of political support. in various states -- political support in various states. if trump sticks to his message of creating a level playing field, he should do the same thing for power, it would be a

great message for power that if we want to have certain types of carbon free energy -- iteration, let's not do state-by-state, because then you start interfering with how prices get formed and not the most economic plans could be the ones running. if we have a national policy that takes subsidies out of the equation, then you will naturally see the cheapest power to the customer and it will not be nuclear. alix: the other side is trump is very pro-fossil fuel and the risk is more natural gas could come online, flooding more power in the market. robert: that is a good point and something that could happen. we have seen the gas producing companies being able to do that, quickly. that is the importance of having a balanced portfolio. --have natural gas plans

plants. there have been times the past couple of months we have been buying it at $.45 per billion b -- a much bigger gas portfolio, so if that happens, our gas generation assets will still be cash flow positive and the other forms of generation will be more difficult for them. it will be more difficult for coal and nuclear energy -- and anything trying to compete with natural gas. alix: it is all about the supply and you don't see that changing, you just see what is in the supply changing. robert: that is the bigger lever. some states have more energy than others. in the northeast, it is relatively flat. it is about how much supply is available in the market and if it is uneconomic, it should exit the market. alix: in the meantime, it has

been a rough year for dynegy, and there have been rumors about a potential lbo. can you talk about that speculation customer -- that speculation? robert: what we have seen is when the energy market somewhat collapsed due to lower oil prices, that spread over to a large portion of the energy sector. investors were shying away from investments that carried higher leverage. they were going away from risk. that really depressed the equity market -- the equity prices. there become -- and becomes a lot of speculation. it is a perfect entry point for private equity. we will earn our market cap and cash flow over the next few years. you companies can say that. the disconnect coming between

public and private valuations, there is a lot of speculation around that. alix: are you putting a for sale sign on your back? robert: absolutely not. we have four times the amount of generation assets we had in 2012. it is about becoming a low-cost supplier, reliable, environmentally sound in terms of how we operate, and that is our focus, going forward. alix: thank you so much for joining us, robert flexon, the ceo of dynegy. david: we talked with the ceo of an ethanol company who is confident his business would flourish under a trump administration. later, carl icahn told bloomberg he has real doubts about the future of ethanol. that is ahead and this is bloomberg. ♪

taylor: this is bloomberg daybreak. up, david lovitz, j.p. morgan asset management and global market strategist. dow may near 20,000, but the new year is looking rough when it comes to china. bond yields spiking, currency looking its worst since 1994 and the interbank offered rate shanghai is that an 18 month high. you can see that spike we have seen in china for. it is at its highest in months. what happens in 2017? great to see you, thank you so much for joining us. i outline three risks for china. what becomes the most prevalent? >> the problem is if you look at

a private sector, the private sector capital investment remains weak. the economy has stabilized, but the stabilization has been caused by the public sector capital investment. once the fiscal stimulus has petered out over the course of the next year, i am concerned that growth will soften quite steadily. the structural problem has been resolved in china, and i don't think the chinese government has done a serious job in reforming the economy. david: how could you really have substantial private investment when you were up against these big state-owned enterprises that have monopolies? it seems to be a full's errand -- fool's errand. chen: chinese economic reform is reaching a critical stage.

you have to do some tough work. if you look at the state monopolies, they are huge. they are enormously inefficient. they employ a lot of people and they act more like a government agency than a company. these companies have a monopolistic position that suffocates small businesses. the problem is to break them up would require a lot of political capability and you would need a leader that has a long-term vision for the economy. you want to know where the economy wants to go. i don't think the chinese government, especially at the top level, has a consensus or vision to pursue the job. that is why you can see the thing stalemate. alix: is it also because china is distracted by managing its currency depreciation? be a very tough

year, because the chinese central bank will have to deal with the fed. the fed will definitely raise rates a couple times. under that circumstance, the chinese currency will be under downward pressure. right now, they are trying to maintain control of interest rates and foreign exchange rates to try to have some capital mobility. to somehow reform the system, either floating foreign-exchange rates or letting go of the interest rate. you cannot do both. if you do, you are taking out your monetary policy. if you think about the chinese economic system, the only thing that actually is left is fiscal policy because they are boxed in on monetary policy. that is why they are focusing on this is goal side. that is -- this fiscal side.

that is one thing you have to deal with, with trumps -- trump's hawkish policy towards china. we spoke yesterday on what would happen if we saw a border tax, and this is what was said. dollar,xtra on the suddenly eight does not seem so ridiculous, just to keep competitiveness at the current levels, forgetting about the dollar appreciation. alix: is that what we are in for with the dollar yuan? chen: it is very interesting to think about a potential trade war. the last time we had a trade war whatn the 30's, the -- happened was at the time, we had a gold standard, so every time the u.s. put up a tariff, it raised prices of every country.

that is why we had a trade contraction from one country to another. today, we have a different an interesting situation. if the u.s. put a 45% tariff against chinese imports, what they could do is manage a massive currency devaluation, let's say 40%. that would completely offset the impact of the tariff. we havesaying is floating exchange rates around the world. that flexibility offset a lot of potential real damage to the economy. you have to be very careful on the market. if you have a trade problem between china and the united states, the chinese currency will be the one that will make a lot of the downward adjustments. david: this is a political matter, even more than an economic one. when the president first came in, he was a true reformer. he has consolidated power and is

there -- is there any reason to believe he is willing to extend that political capital? i think the problem is i am not very clear about the president's economic idea. he talked about supply-side. if you read what he really meant, it means a totally different thing from the supply-side. understand, we talk about trying to make sure you regulate the system, cut taxes and make the firm much more competitive. that is what we mean by supply-side reform. reallyu hear him say is a very strange thing. state talking about monopoly, cutting oversupply. which is ok, it is a technical's side -- technical side.

talking about strengthening state monopolies. that is not supply-side reform. that is something else. i personally don't think he has an idea of where he wants to take the economy. that is why i think the next party congress is very important because i think they will shuffle the economic leadership. i think the current prime minister will probably be replaced by somebody that is much more powerful, stronger and older in terms of cranking out this economic reform plan. david: there is a good prediction to end the year with. brandywine global codirector of global macro research, thank you. alix: one of the hottest debates in the ethanol world has to do with rins. when you blend ethanol with gasoline, you get a rin credit. these prices have soared in the

past year, drawing big criticism from names like carl icahn, now a trump special advisor. i spoke to the ceo of greens plane energy, that is an ethanol company, and he talked about carl icahn's hatred of rin. todd: these are complicated policies and you cannot take the view of one person on the wrong side of the trade to reform a system that does not need to be reformed. rin credits are a zero-sum game. alix: joining us now is maria parker. you spoke to carl icahn to get a response. what did he say? ario: carl icahn has been pushing for a while about this aspect of rin and the renewable fuel standard. he has been pushing for the epa regulators to move the point of

forgation, to move the onus who is responsible for adhering to this program. standing strongly on the stance that the system needs to be reformed, he took it a step further that he had in the past by saying the ethanol industry should get on board with these changes in order to prevent any type of economic instability that may result with the closure of a refinery or something along those lines. alix: what was interesting was that carl icahn said there were other people in the industry that thought like he did, not just the fact that he might have made a bad bet in the market. carl icahn has been very vocal about it. he has a very prominent name, so it carries a lot of weight. he is not theas

only one that has concerns about the renewable fuel standard. in fact, there are others that have even deeper concerns or criticism, whereas he is asking for lobbying for what he considers a minor tweak to make the program run more smoothly for independent oil refiners, like the company he owns. -- thate others saying have even deeper concerns about the mandate. alix: mario parker, for bloomberg news. now it is time for other stories making headlines. here is taylor riggs. of the the president japanese advertising giant was resigning. he will quit, next month. forutives held responsible the death of a 24-year-old employee who killed herself on christmas day will be punished.

she reportedly worked on hundred five hours of overtime over the course of a month. find ball come for a -- for my living in antitrust law. qualcomm says it will appeal. delta has canceled an order for 18 boeing 787's valued at $4 billion. it had inherited the order were to a go over for northwest airlines in 2008. delta says it will continue with the latesty 120 of 747 models -- 737 models. -- battle of the charts is next, this is bloomberg. ♪

david: this is bloomberg. it is time for our battle of the charts. we have abigail going up against alix. abigail goes first. abigail: the s&p 500 up about 11% this year, on pace for its best year since 2014. interesting to note whether or not the s&p 500 is going to far, too fast. we have the s&p 500 up near those record highs but what stands out is the expectations for stocks continuing to rise, its biggest monthly jump since 1998. weer the jump in 1990 eight, see the s&p 500 moved into the 2000, but followed by a bear market, the timing is tough, but a decline could be ahead for the s&p 500 stocks as investors get ahead of themselves. david: maybe the best is yet to

come. abigail: perhaps, i like your optimism. alix: i think we are in trouble. i will take a page out of the china book. what kind of volatility and risk we might see in china. this is one of my favorite charts. this white line is the dollar yuan, one month implied volatility. the blue line is the s&p index. what we see in the past few weeks is a real spike in the one-month implied volatility. the s&p has managed to claw higher to around record highs. what happened the last few times we have seen a spike in implied volatility? back in february of earlier this year and 2015, we saw declines in the shanghai composite, led by declines in the s&p. we saw the same thing, this year. my internal question is, how can the world be insulated from

potential volatility when it comes to chinese currency, especially if we see a loosening, next year? david: if the past is prologue, we should be worried about this. the markets have not been quite as responsive to china as they used to be. alix: i was surprised by august 2015. david: i think i will go with alix. hour, j.p.n the next morgan asset manager global market strategist david little wits -- david lebovitz joins us. ♪

♪ alix: welcome to "bloomberg daybreak."

it is wednesday, december 20. i'm alix steel alongside david westin. 30 mins away from the opening bell, it is quite trading with the ftse over a record high. s&p futures right around the highs of the session partly fueled by a rally and oil as well as gold. oil rolling over just a touch. you have the dollar grinding higher throughout the morning. the dollar-yen at 117 and the euro-dollar down 6/10 of 1%, right around the lows of the session. 103, the dollar king takes the cake. david: here's what you need to know at this hour. american see the bright side. u.s. consumer confidence soars beyond all estimates. is it because of donald trump? well, he tweets that it is. it's the most wonderful time of year. retailers that have on shoppers to give them a green christmas.

can that spike in consumer confidence translates to: cold hard cash? toshiba sees it stock plummet aer the third day with write-down on projects in the united states. how bad will a get and mike iraq administration help. -- might a trump administration help. strongest rally in four months, but losing some of that steam. they were looking at a seven-day winning streak now relatively flat on the morning. natural gas rolling from its two-year high. looking at warmer temperatures in the central and western u.s. next week. not here though because it's supposed to get cold. take a look at delta and boeing. delta up three tens of 1% and bowing off by 1/10 of 1%. they are terminating an

agreement for 18 wide-body jets . dreamliner's were bought by northwest airlines, which delta bought in 2008. it was valued at $4 billion, but we do not know the terms of that settlement. qualcomm taking up steam to the downside when it comes to premarket trading. 853 million dollars by south korean antitrust regulators, fine for licensing on mobile phones. the makers of samsung and lg may better get terms from desk at better turn from qualcomm. david: you been asking about their conviction trade going into 2017. to take us through those conviction trades, we are joined by oliver renick. let's talk about a couple dealing with fx. we had to divorce earlier and this is what he had. >> this is what i call escape

.elocity from dollar fo 105,the euro broke through i think the dollar is going to continue to be stronger, which implies weaker commodity prices. i think the biggest surprise is that economic growth is less than people think. david: there's your first one. the stronger dollar is the most hard to believe at this point given where the dollar is, record levels. is that a consensus view? oliver: it's hard to say. i would think right now you seem to strengthen dollar after the election. you look at a six-month range and it has not gotten anywhere. there are two forces. one force in the u.s. is that we're going to have economic growth and a rate hike. that would lead to a stronger dollar, but given the past year with the dollar strengthened and the pound got obliterated post

is room fore are othe other currencies to strengthen. that is thethink story with a lot of asset classes now after the election. expectations had been set so high that the bar is pretty hard to reach. i think that goes the same with anything related to interest rates because they basically have this whole curve that is prid priced out. alix: take a look here today and you have energy up 25%. industrials up 17%, materials up 16%. what he says proves true, stronger dollar, weaker commodity prices, that doesn't want good. oliver: it doesn't. one thing about the industrial space is that when you bring down what is happening in industrials, it's a pretty clear-cut story went way a lot of this strength is coming from

and for structure companies. -- infrastructure companies. it is about the fiscal stimulus they going to see and also ties into commodity prices as well. the energy stories comparable to last year. the earnings story will drive that. david: going back to the brexit. the pound was obliterated -- that's the word that you used. he was also with you. >> sell sterling. i think the thing has got a long way to go. nothing has gone in the u.k. yet and we keep going and 110 is our end of the year forecast. one of my high conviction trades is still constant and still grinding lower. it's a good trade. david: this has to be one of the big question marks with what happens with brexit. someone else on

yesterday and he was bearish on the pound despite what has already happened. other interesting person is david laffey and basically what he said is that he's in equities guys, but listen, the ongoing story with exit and how the political field unfolds is one of the biggest risks to the market. i'm starting to hear that crop up more. given the u.s. election, it overshadowed what we were already talking about in britain. people refocus to the u.s.. as this plays out and all the chips are on the table, there are still questions that have to be answered whether or not companies are going to move around. i think that is going to affect the price and that in turn risk,e a headline especially the pound tha next year. alix: that brings me to volatility. it has not been a smooth ride

for sterling on the up or the downside. how do you hedge again the volatility when that trade did not pan out? oliver: it's interesting because the weaker currency obviously opens up a comparative i advantage for equities. in the u.s., there's been a lot of money in the u.s. since the election coming to equities. on a valuation standpoint, it is not the most adventitious place to be. let's look at u.k. stocks of european stocks, which are cheaper, but is it worth the risk you are going to take on for the geopolitics as well? it's all about whether you are willing to pay for companies and whether or not you are willing to take on the risks of the region. in europe, that is still the lingering risk. david: you get what you pay for. oliver: it's a novel idea. david: thanks so much.

that is bloomberg's oliver renick. now we go taylor riggs for first word news. taylor: secretary state john kerry will outline a plan for resolving the israeli-palestinian conflict. he is delivering the speech three weeks left in president obama's term and it comes after a resolution by the yuan government last week. to veto aefused resolution. are hopingrussia this one does. the two countries have agreed on plans for rebels and syrian government troops to stop fighting. a turkish news agency says the truce would begin tomorrow. terrorist groups will not be considers and turkey the islamic state and kurdish forces to be terrorists. the obama administration is on the verge of punishing russia for interfering with the present election.

the measures could include economic sanctions and diplomatic censure. another possible road is for the u.s. to launch its own cyber offensive. some of the steps could be announced this week. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, i'm taylor riggs. this is bloomberg. david: coming up, oil reverses its rise to snap seven straight days of gains. mergers and acquisitions in 2017. that is next. this is bloomberg. ♪

alix: oil prices giving up some of their games, but it did have a monster rally on a 17 month high on the hope and

optimism that the opec packed happens. this map shows the difficulty with those cuts and the risk in the market. this is libya right here. these lines indicate a particular tankard, which docks and libya off of a port that was closed for two years. it now docs in italy, offloading some of the oil. arrived at port and will unload 630,000 barrels of oil a day. that is how much it can hold. so idea is that we will see much oil coming out of libya and making its way to europe and potentially other areas in the world as well. what does that do for an opec cut? they are exempt, but that is oil opec has to contend with, bringing the question of issue surrounding the potential cuts. david: oil has been at the top of the news for 2016, which makes alix steel happy. whether it is prices or opec or u.s. shale, as prices went up,

so did the volumes of mergers and acquisitions. the question is what happens next year. here to tell us is bloomberg intelligence analyst vince. let's start with opec because the prices have come up. what are the prospects for the enforcement of this new opec deal as we look into 2017. ? vince: those prospects are quite challenging. opec strength has been quite suspect. when we think about 2016 in the backdrop for 2017, compliance and restraint is the big challenge. you saw the initial enthusiasm for this announcement and prices did rise, but if you take a look at the current post june 20 17th, there is some skepticism. important -- why is june 2017 apartment? the first review of the appointment made earlier this month. david: if prices go up farther,

what is the u.s. shall response? vince: if you think about shale and what has occurred over the last years, you have seen the operators come down on the cost curve. you have seen capital efficiency and asset intensity go down as the operators have done more with less. the break even to have gone down as well. a you think about 2017, period of relatively lower prices, you could see a positive supply response and operators mentioned they are much more confident in the price and are looking to bring back rigs. we have seen the rig count come back up an activity rise and completions of wells. you will likely see that output response as well in 2017. alix: the real question is where. there's a recount since it bought about, but we will see more money coming into the permian or will we see more money on the margins? vince: first and foremost, you

are correct. permian has been that legacy play that keeps on giving. you will see operations in the permian pick up as well. that's as they drill more wells. as the price rises, you will see activity pick up of the other oil dominant plays. you'll see activity in the stack and there are smaller place. you will see activity in the dj basin. activity rising and being led by the permian basin. david: does that activity need more acquisitions and consolidation? vince: what we saw in 2016, we saw a roughly $60 billion of m&a deals in 2016. that is roughly twice what we saw in 2015. there are various reasons for that. part is getting rid of assets you can so you can stay in the game and survive. it was opportunistic for those who could raise equity capital . as you gain confidence, maybe can feel they can go alone

longer appeared for the robust m&a activity that we saw in 2016, it would be in the upstream space of the system. is inthe question though the past what we saw as a lot of leveraging and free money for these oil companies. by this stricter standards they have in the last year or do they go back to those old ways? vince: the capital market window is wide open. alix: it has been the whole time. vince: follow one offerings in 2016 were roughly $31 billion. that is compared to $7 billion last your. even the lenders said they are less negative on energy today than they were 12 months ago. it seems like capital allocation givenctives have emts

a little more leeway and flexibility for 2017 relative to 2016 over on the capital structure. alix: do they go back to those old ways or do they assemble it and their cash flow? is that sure? vince: we have seen this before and we have seen them as well. david: thanks so much to vince piazza for joining us today on oil m&a. retailers depend on shoppers to give them a green christmas. did that spikes consumer confidence express itself in cold, hard cash? we discussed that next. this is bloomberg. ♪

donald trump tweeting last night the u.s. consumer confidence index in december surged four points to the highest level in more than 15 years. thanks, donald.

how much does this translate into the holiday season ended the president-elect have anything to do this? joining us now is wendy could thanks for being here. wendy: thank you. alix: where are we in this holiday season to last year? wendy: better. it was very early digital, very late stores, very discounted. not a worry ass we get to the new year, but people did come out feeling better. the economic indicators made people at little better. not sure mr. trump had anything to do with it, but they came out. david: it feels like they are cutting cost in order to attract people to come to stores instead of online to buy things. wendy: first of all, it was how do we get them in? everyone believed it was discounting instead of new and innovative in different.

they got them in, but at what cost? alix: we have indicators that consumer confidence is up so much could whether or not it was trump, we do not know. does that road well for spending next year? wendy: it is a two edged sword. people are feeling better. the people are feeling more settled. uncertainty is like the market, the same with the consumer. if they are uncertain, they don't spend. they are feeling more assured, but they are not going to pay full price for almost anything. you are going to keep having that discounting going on. alix: did we ever get back to a market where we pay full price was discounting the new normal, just like slower growth is the new normal? wendy: it is. consumers are not stupid. they have got the information to tell them where the prices are right for them and they will buy one presses are right. unless it is something really

different. david: how much is online contributing to that phenomenon? remember when he had to go to newspapers and match ads? now you can just go online and their algorithms that will find you the best price. wendy: it's also price and convenience. it is easier, so why bother with all the hard shopping? that some analysts said there are some retailers are brick-and-mortar stores that are doing well. this is one of the analysts from jeffries who said that could who's doing it right? wendy: those retailers have added an experience to what they have got. they have got unique merchandise and the quality of the service of the store balances out the ease of typing in something. that no the retailers dimensions instead of a discount . alix: does that brand them?

wendy: it is uniqueness of why i get off the couch and away from the desk to walk in the store. it has to be something experiential and something i cannot get when i shop online. david: it opens up another door. we can tell from consumer confidence, but for what? is there a larger shift from buying stuff in sin of having experiences, whether it's a meal or a movie or whatever? wendy: that is the other shift traditional retailers have not been willing to address. they talking about it occasionally, but is it worth it to me now? it's not necessarily more stuff. alix: who is doing it right? what kind of stores? names, sorry,ing but the kinds of stores are those that have strong customer experiences. by that, i mean the people in the store. when i walked into the store, i feel very unique and that could

be high or low price. it does not have to be a premium to do that. not so much a peril unless it is athletic wear. that is the only thing that seems to be working these days. a little more denim. food retailers, the specialty food retailers, are doing a really good job. the overall experience is not just eating, so there are a lot of smart specialty food retailers out at the moment. david: this is your life and profession, so i'm going to ask a tough question. at what extent are these people rearranging the deck chairs on the titanic? there's this thing called amazon. is anything that can put a dent into amazon? wendy: that's a really hard question. you would think not of the moment although i will say this. the shoppers want multiple choices. a want to be the store

and sometime i need it right this second. not everyone does the amazon won our delivery. sometimes i need it right now so the people who deliver really get an advantage. the food services that deliver to your home no, but you are absolutely right. brick and mortar has a long way to clean it all up before we really start to see validity and what is going on out there . alix: when you look at the past holiday shopping season's, what are the mistakes that retailers made? wendy: it is totally bifurcated. people come out early and often digital and they do not come back until the week before christmas. i think that is the big issue. all that time, the hours open, the really long hours up and did not make a dent in the business. i think that is an issue for a lot of retailers. david: did some retailers make a

dent by adding online? walmart is making a big push by adding an online component. our stores like that making real progress? wendy: they are, but it's painting them real behind. they have to catch up quickly. the big boxes are somewhere you can go online and pick up at the store and that shoppers really do like. those things are making a difference now. alix: wendy, thank you so much cou. great to get your perspective. the opening bell up next on bloomberg. we are four minutes away. s&p futures slightly higher on the highs of the session. record closing high for the ftse, but the stronger dollar continues. what will that do to the stocks of the open? bloomberg.ebir ♪ with the xfinity tv app,

anything with a screen is a tv. stream 130 live channels. plus 40,000 on demand tv shows and movies, all on the go. you can even download from your x1 dvr and watch it offline. only xfinity gives you more to stream to any screen. download the xfinity tv app today. david: this is bloomberg. i'm david west appeared we are under 30 seconds away from the opening bell in new york. let's take a look at the premarket to get a sense of the futures.

they are up somewhat across the board. dow jones, s&p, and nasdaq all up. i've the war you that it is pretty light trading in fairness. the dollar keeps rising. it is up against the yen and sterling and the euro. the 10 year yield is flat at 2.56. inch upude continues to ever so slightly as it's anticipating the opec deal coming to fruition. let's go to alex still to find out what's going on in the stock market. alix: we do see a little bit of movement and the indices with the dow jones up 1/10 of 1%. it is right around another record high here, one point away close.e record w we are 30 points away from the doubt 20 k. the nasdaq opening up at another record closing high. it closed at a record yesterday

and we are now seeing the rally continue underway here. -- theday where goods intraday records are off from those rebels. the rally continues and the volume is very light as david was mentioning. the biggest gainers continue to be the biggest danish. -- biggest gainers as the stock markets open. nvidia up almost 2%. it is up to hundred 56% so far this year. it is the best gainer in the s&p. big calleing a lot of option interests over at advanced micro devices, up 320%. the winners continue to be the winners. that leads me to the chart of the day. this is about stock optimism. this is a conference board survey of those that expect higher stock prices. you can see how much it has searched. that's just in the last survey. it is the biggest jump since we

saw back in 1998. when we have that big surge in the optimism in 1998, we continued the rally, but then you had a steep decline from 2001 to 2002. do we continue the rally in optimism or do we revert back to scenario?rish if my mom starts talking about stocks in the optimism reigns is that a good or a bad sign? david: i want to talk about that more. we are joined now by the asset management lamarcus strategist to want to pick up exactly with that chart that alex just showed. does it make you nervous when you see that line almost vertical on expectations? >> what that shows is that there is a lot priced into the market now. you modify that chart slightly and replace the index level with the forward pe ratio. you see an even tighter relationship which shows that this rally we have seen has been built on improving expectations

and people feeling better. what is key is that we see that translate into hard data. david: going into 2017, what do you think the big story will be in equity markets? big storyi think the is earnings. what are the drivers of earnings and what could suppress earnings? the dollar is right near 14 year high. 2015 psi stronger dollar, way on the revenues of multinational corporations. we are talking more about inflation. we need to be cognizant of what wet means for the fed or do get the goldilocks scenario, which is what the market is pricing in? it's a little bit better growth and more inflation, but not too much inflation to scare the fed. that translates into stronger revenues and margins state could and earnings growth comes back in the mid-single-digit range. alix: what is your strongest conviction trade for 2017? david l.: we like cyclical sectors more than defenses. i think the financial trade will keep working.

interest rates are headed higher and banks may go back to baking money -- making money by being banks. industrials, materials. energy, we need to be clear with what happens with prices, but stay away from the higher-yielding parts of the market. that is our game plan for 2017. david: if cyclical's is the story going forward, how much is driven by wage pressure? people need more money in their pocket to spend money for things that go up and down the cycles. david l.: people are focused on the dollar and inflation and all the things i just mentioned, but they forget the unemployment rate is at 4.6% to the labor market is tight. we will see some ways growth. what does that mean for corporate margins? if margins deteriorate and that is offset by stronger growth, that is ok. if wages go up and margins go down and revenues stay flat, earning start to get squeezed and that is the risk as we head

into 2017. alix: if the fed hikes faster, what kind of an effect is that have on companies as well? hikesl.: the fed rate eu's interest rates to manage the speed of the economy and i could weigh on overall economic growth, which has a tight relationship with revenue. wages of the unappreciated risk because they lead inflation and could lead the half said to hike faster than expected. i feel like wages are what we need to keep an eye on. alix: i'm curious is what happens to volatility coul this is one o,. this is one of my favorite charts. we've not seen something that large since 2008. oliver was on earlier talking about outside moves. what does that mean for 2017? david l.: we get to this part of the year and everyone like myself comes on and says we expect more volatility for next year.

realized volatility was high and 2016. i think implied volatility is the risk. curve,look at the vix volatility pricing increases over the next year. the market is telling us we are in this scenario and it feels pretty good. we've got more progrowth policies or we expect more progrowth policies out of washington, but volatility is going to trend higher from current levels. david: if you look at volatility in commodities or foreign exchanges, it's a different story. can they remain so divergent? david l.: that is one my favorite charts right now. you saw the vix and the move index and you have shown what they have done since november 8 and volatility has spiked and come back down. fixed income volatility has stayed elevated. and theond market leads stock market follows, are bond markets appreciating something the stock market isn't? is thats comes down to

the stock market thinks donald trump is going to bowl a 300. the bond market thinks he might throw a gutter ball. the bond market thinks this may could lead to more inflation. alix: you mentioned volatility might be picking up, but you mentioned the curve. i pulled it up on my terminal here. this green line here is what the curve looks like the day of the election. the orange line is where we are now. make the argument that volatility is looking to pick up in the first quarter of 2017, but we are so much lower than what we thought we were going to be in november. that is not a pickup and volatility. david l.: realized volatility is what i was more talking about. in terms of implied volatility, what the market is saying is that volatility is very low today and we are comfortable with where things are today, but do not be so comfortable about what might lie ahead. perhaps levels are lower than pre-election, but it is still

signaling that volatility should pick up in the medium-term. alix: that really melds with what pimco was saying earlier. you have this equity market near dow 20,000, but upon market is getting different signals that is not being priced into the market. david: living in different worlds forever. when you talk about earnings being the story, you have to talk about the u.s. dollar. u.s. dollar strength has traditionally affected earnings for u.s. companies. how concerned should we be with a strong dollar? david l.: the key to understanding the dollar is focusing more on the pace of the appreciation as opposed to the absolute level. what killed companies a couple years ago in 2015 is the dollar went up 20% essentially overnight. it went from one level to the other end the year over year change was between 15% and 20%. that is very difficult for companies to deal with the because it makes all their goods and services 15% more extensive. if we see a more modest dollar

move, which is our expectation, we think companies can adjust that, particularly if it is spread out over the course of the year. we need to watch the rate of change much more than the absolute levels. alix: your conviction trade was banks and slick vocals. wh-- cyclicals. what is the big question mark trade you have right now? david l.: it's about international and emerging markets. i'm a long-term investor like to let valuation be my guide. emerging markets are the only part of the global equity market that are still cheap. people were liking emerging markets. we receive better economic data and earnings expectations come back. emerging markets have come under immense pressure since the beginning of november. if trade is a little less hawkish than what people are expecting, emerging markets could be a big winner,

particularly for long-term investors even where the price-to-book ratio of the index is right now. statistically speaking, your pricing in double-digit returns. david: are there pockets more insulated from trade activities? david l.: yep to think about the underlying goods and drivers of the economy. unfortunately most of these are export oriented economies, but we prefer to play the manufacturers as opposed to commodity producers. there's more clarity on the manufacturing export front then the prices of commodities headed in 2017. alix: unfortunately most of these are export oriented economies, but we prefer to good to see you. bovitz, global market strategies. david: we hear from tobias on what he sees ahead in 2017. that is next. this is bloomberg.

taylor: this is "bloomberg daybreak." i'm taylor riggs. coming up later on bloomberg, robert finch of pierpont securities. alix: we are 13 minutes into the opening of trading and here's where we stand. dow jones is not even. it is flat, flat, more flat. all the indices backing off any potential record highs. the nasdaq closed at a record high yesterday, the backing off day. volume is just abysmal. trading bands out on the holiday week. for more, let's get to abigail doolittle. abigail: when the big stock stories globally today is toshiba. inres absolutely plunged

japan, having the worst day since 1974. we see that the stock is down 30% over the last few days. it is the worst two-day plunge since 2011. this is as moody's has cut the credit rating on toshiba to the third worst level of junk status. this follows news that toshiba may have to write down nuclear businesses related to the u.s. up to $4.3 billion. there is much more according to her bloomberg intelligence analyst of the estimate of $80 million. 34% of toshiba's business comes from the nuclear segment. could be a big hit to the company. the stock has taken damage. #btv 2521. at g this is a roughly three year chart of toshiba and the plunge has been broken. toshiba tried to find support on the 200 day moving average good

the last time it was tested in this way, it proved to be bullish. back in 2015, the stock tested that 200 day moving average. a 67% decline. it is important that the buyers and investors of toshiba get up and support the stock or there could be bigger declines ahead for the shares of toshiba. david: thanks so much, abigail. chief equity strategist just boosted his s&p 500 target for 2017. on "bloomberg markets," he discussed what is driving his outlook. tobias: would start at the numbers. -- let's start of the numbers. it's up from one dollar 20 $.50 of this year. increase on the map, you're getting three percentage points come from the energy sector looking starter this year versus a year ago. you got higher oil prices and that templates to better numbers for the producers of oil and gas.

benefit,of the tax cut in other words the stimulus program, we are looking at a 20% tax rate down from a 27% effective tax rate for the s&p 500 currently. that would add exceptionally important only the fourth quarter. it is what we assume the fourth quarter 2017 phenomenon. if you look at that package, you're only looking for another 4% or so coming from the rest of the market. that is pretty modest. for the following year, we introduced a preliminary number $146 and nine dollars of that improvement comes the trump tax cuts. we are not assuming anything economy andnger a capital getting a boost from 100% depreciation. they're going to be offset and we will find more details next year. just a lower tax rate, you get a bump and earnings. as a result, you get some bump

and you do not get the same bump in the market as you do on the earnings front. we do not value tax fluid earnings the same way we would inue and improvement underlying operational leverage because quite honestly, you could have a future administration take away that tax cut. >> it could be temporary and theory. when you talk about valuing these earnings, i have a chart on the bloomberg down not sure you can see it could elici. we are of around 19 right now. we are more than one standard deviation away from the five-year average of the forward pe. we have had this run since the election. in your mind, where is fair value at this point given that andook for ae earnings that we are about the near-term historical norms? tobias: there are probably three problems with the question to be fair. even if i have valuation metrics

and we do, that notion of fair value and my opinion of fair value doesn't matter when you have millions of investors determining what they think fair value is. people slap on their own expected levels. they are somewhat arrogant that the everyone is when to listen to them. the five-year timeframe you're talking about says that if you put up the price of the yield on the 10 year treasury, you can also see a fabulously crazy multiple on them and nobody talks about bond markets being overvalued. if you go and look at a 20-30 year history and compare the two, we have had massive divergence between the two were bonds were crazily overvalued. the stock did not get that benefit in the past five years. the five-year history distorts the real perspective. sorry, my earpiece keeps coming up. aboute do think

valuation, we do this on a normalized earnings basis. bond it on a normalized yield basis and we have earned 87% probability that markets will be higher in the next four months looking back over 45 years of history. mark: you graded yourself a be plus for 2016. where did you fall short? what is going to give you the a grade in 2017?-- tobias: i do not get many a's in school because i do not apply myself and i'm a tough grader on myself. one was the extent of the rally which occurred. and wea target of 2150 are closer to 2250 for this year. that is part of the great hurt. the second piece is that small caps have really run hard here

since the election. most of the outperformance is tied to a stronger dollar, which we had not anticipated. those are the two failures if you want to call it. in terms of the coming year, i suspect the continuation of outperformance in financials and energy. i think there's a fair amount of pushback that these have gone too far and we think there's an opportunity to go further given that we do not believe -- and again we may be wrong -- but we do not believe investors have fully embraced those views. mek: can you explain to something that julie and i have been battling over the last couple days? it's the lack of volatility. when you look at futures, you see a gap between now and three or four months. it is a multi-your gap. does that tell us we are storing up out of volatility in the months to come? tobias: one of our themes is a return to volatility. must people focus on the political issues, but we look at

the shape of the yield curve. it has been a two-year lead indicator for volatility and it is indicating a pickup and 2017 and 2018. with regards to particle dynamics, people will be focused on new administration and bills they're going to pass. what is the ease that they are passing those bills? there's one should be some political backdrop to repeal and the place obamacare. issues around what the tax cut looks like. there will be deductions from personal tax rate or some border tax issue being discussed in congress coul. it's not going to be beautiful smooth sailing. david: that was tobias from citigroup. coming up at the top of the hour, it is "bloomberg markets" with vonnie quinn. e: you have been talking about conviction trades and we

will stick with that theme. interestingly, european banks is one of them. he thinks as a group they may rally 50% next year. we will also keep an eye on that very important john kerry speech about israel. examining the ramifications to the president-elect has already been tweeting about that issue today. alix: coming up, we share our top takeaways from this morning. we are 20 minutes into the u.s. trading day and here's where we stand. relatively flat indices everywhere you look. the s&p down 2/10 of 1%, the dow flat, the nasdaq off from record closing levels yesterday. low volume, quite trading on the shortened trading week. this is bloomberg. ♪

david: this is bloomberg could we're going to talk about today's takeaways. we had tony from pimco on and he

addressed the questions of 20,000 dow and whether we should be concerned about the number. >> the markets are still believing that rates will stay low. this is a message for those who look at dow 20000 and think all is rosy. they should look at the bond trajectorywhat i it is to see what investors think about the growth story looking through the rest of the inade, which is more benign the u.s. and globally. david: you better watch out because the bond market -- equity markets are not syncing up at the moment. alix: this chart proves it as well. this is the volatility index for treasuries versus the vix index. we are seeing the move roll over a little bit, but there's a big gap between the two. you do not see that kind of gap. there is more volatility price treasuries been stocks. how does that wind up lasting?

do we see bonds meet stocks or vice versa? david: that is the point. in 2017, 1 of those is going to come to the other. which one moves? alix: that is the risk when you're looking at dow 20,000. 25 minutes into the session, here is the light trading day in the markets. i'm going to call it totally flat. the s&p off by 2/10 of 1%. the nasdaq backing off its record high from yesterday. you have the ftse at a closing record high, up by 5/10 of 1%. you have the dollar continuing stronger, pressing the euro lower. crude up by 5/10 of 1%. that does it for "bloomberg daybreak." this is bloomberg. ♪

>> it is 10:00 a.m. in new york. from new york, welcome to bloomberg markets. ♪

vonnie: we will ticky from new york to london, plus we are covering stories out of germany, tel aviv, and frankfurt. global equities are trying to go higher bumping into resistance. the u.s.'s return is now negative. the ftse has an all-time high. european banks set for a big rebound than a year? we will speak with very banister -- bary banister. and that waco populism that pushed britain to vote for brexit and pushed americans to , we willdonald trump tell you how much people like warren buffett made in the past month and a half. we are about 30 minutes into the trading day in the u.s. abigail doolittle is here. the dow